Nine Ways to Build Funds for your Down Payment
Whether saving for a home, car or vacation, small adjustments can make a big difference.
Buying a home, especially a first home, is a big financial and emotional step. If buying a home is important to you, do your financial homework. Investigate your mortgage options. Determine what level of monthly mortgage payments will be affordable and comfortable. Use some discipline to save your down payment.
Here are some methods you can use to accumulate funds for your down payment:
Enroll in an automatic savings plan
One easy way to save is to enroll for an automatic savings plan at your financial institution. Have a certain amount transferred from your checking account to a dedicated savings account each month. Or get a second job and save your additional earnings. This provides some discipline, and you may be able to use a money market type of account to earn higher interest.
Living in a cheaper apartment while you accumulate your down payment can help you get your money faster. Cheaper rent may balance out a longer commute to your job. If you are just starting out or are considering changing jobs, you may want to consider an area that has lower costs of living.
Reduce other high-interest-rate debt
Paying off credit cards will take some of your savings, but you will not be paying the high rates usually found with credit cards.
Skip a year's vacation or make simple lifestyle adjustments
Most people end up saving for a couple of years to accumulate the amount needed. This may mean less or cheaper entertainment or less dining out.
Borrow the down payment from your retirement plan
Many company-sponsored 401(k) or profit sharing plans have provisions to let you do this. Check the details of your plan. Your employer's Human Resources or Payroll department can help.
Make a deal with the seller
Sometimes a seller is willing to help sell their home by taking a second mortgage for part of the purchase price. Be careful if you are considering this and make sure a qualified attorney looks at all the documents.